Portugal sold 300 million euros ($417 million) of 12-month bills todayafter indicating it planned to issue 500 million eurosThe securities were sold to yield 1.38 percent, compared with 0.93 percent at a Jan. 20 auction.

Spain’s Tax-Cheat Landlords Add to Rising State DebtFeb. 3 (Bloomberg) -- More than half of Spain’s landlords are dodging taxes as the rental market expands, depriving the financially strapped government of more revenue each year.

Owners are asking for payment in cash from tenants to avoid tax on 2.5 billion euros ($3.5 billion) of earnings annually, the Gestha union of tax inspectors estimates. An increase in rental properties nationwide hasn’t generated any more tax revenue.

The Spanish government, seeking to pull the country out of its deepest recession in 60 years, needs all the money it can get right now.

Rent fraud is just the tip of the iceberg, with Spaniards avoiding tax on income of 240 billion euros, equivalent to 23 percent of the economy, according to Gestha.

Feb. 3 (Bloomberg) -- Italy’s financial police are seizing 73.3 million euros ($102 million) of assets from Bank of America Corp. and a unit of Dexia SA as part of a probe into an alleged derivatives fraud in the region of Apulia....The region, also known as Puglia, joins more than 519 Italian municipalities that face 990 million euros in derivatives losses, according to data compiled by the Bank of Italy. In Milan, prosecutors seized assets from four banks including JPMorgan Chase & Co. and UBS AG in April and requested they stand trial for alleged fraud....The seizure of Apulia’s semi-annual repayment of the bond will neither affect the interest payments bondholders receive nor will it affect the final repayment, the prosecutor said. Apulia is rated A1 by Moody’s Investors Service, four levels below the top investment grade.

Feb. 4 (Bloomberg) -- Spanish borrowing costs rose at a sale of three-year notes on concern that the government will struggle to narrow its budget deficit.

The government sold 2.5 billion euros ($3.5 billion) of the securities to yield 2.63 percent today, compared with 2.14 percent the last time the notes were issued on Dec. 3. The sale attracted 4.6 times as many bids as securities on offer, up from 1.72 at the last sale.

Greece under EU protectorate as funds shift fire to PortugalThe European Commission has ordered Greece to slash public spending and spell out details of its austerity plan within "one month", invoking sweeping new EU Treaty powers to impose a radical shake-up of the Greek economy.

Greece's labour federation immediately called a general strike for February 24, dashing hopes that Europe's provisional backing for Greek crisis policies would restore investor confidence.

Brussels invoked new EU powers under Article 121 of the Lisbon Treaty, allowing it to reshape the structure of pensions, healthcare, labour markets and private commerce – a step-change in the level of EU intrusion.

One banker described events as eerily similar to market confusion before the failure of Bear Stearns and Lehman Brothers in 2008, this time involving sovereign states rather than banks.

The gap between what EU demands and what ordinary Greeks seem willing to accept is so wide that it may prove extremely hard for Mr Papandreou carry the country. The top union bloc said the government had "succumbed to the will of the markets" but would now have to face the stronger will of the people.

Samir Patel, from the consultancy BH2, said austerity plans will "almost certainly send Greece into a deflationary spiral", and tip its banking system "into the Mediterranean Sea". Greece is being told to carry out IMF-style retrenchment without the IMF cure of devaluation.

Modern money "shorts" the currency, and is backed by debt. The debt is real. A debt deflation will lead to a prolonged period of deleveraging, where the short-covering of currencies will strengthen currencies relative to asset prices. At the global level, in the FX market, central currencies will benefit from deleveraging at the expense of peripheral currencies. Due to instability and uncertainty, gold will benefit against all currencies as it continues to be re-monetized.

Hold on to your hats for hyper-deflation, where cash is king, and gold the King of cash.
[Silver? A Volatile Queen].

Yes, almost like the 'Primary Dealers' (if they have such a thing in Portugal) were told they had to bid, and the enthusiasm was so intense that the yield went up 25%.

In practice it works mechanically differently to the way you are describing it in words. The interest rate per face value remains constant and you get to buy them cheaper if others dont want them. If you think you can get them cheaper because of a temporary crisis you will aim to buy more at a cheaper price with the same fixed interest. As you know of course.

In practice it works mechanically differently to the way you are describing it in words. The interest rate per face value remains constant and you get to buy them cheaper if others dont want them. If you think you can get them cheaper because of a temporary crisis you will aim to buy more at a cheaper price with the same fixed interest. As you know of course.

yes sure, thanks. I think you are trying to say: The coupon remains as the issuer set it, but the price the Primary Dealer pays might go below par if they aren't very enthusiastic. This means the Yield would go above the coupon.

It's the level of enthusiasm that's surprising, IMO. I would not want govt debt unless it were at MUCH higher yields. The CBs are setting a trap I think. Holding on to 2-3% yield to maturity when IR's hit 10% is a huge loss over 10+ years .. and the bond prices will reflect that if and when it happens. Bonds don't seem such a safe investment to me.

yes sure, thanks. I think you are trying to say: The coupon remains as the issuer set it, but the price the Primary Dealer pays might go below par if they aren't very enthusiastic. This means the Yield would go above the coupon.

It's the level of enthusiasm that's surprising, IMO. I would not want govt debt unless it were at MUCH higher yields. The CBs are setting a trap I think. Holding on to 2-3% yield to maturity when IR's hit 10% is a huge loss over 10+ years .. and the bond prices will reflect that if and when it happens. Bonds don't seem such a safe investment to me.

I have no doubt that the cbs give the players the nod to buy this stuff with the reassurance they can be sold to the CB's at some profitable amount if the time comes. The ECB for example wants inflation and is desparate to remove the current 'abnormal constraints in the supply of credit' so that the current small recovery can be maintained.

Meanwhile we get this kind of news from top european companies:

Konecranes Q4 pretax dives 75 pct yr/yr

and

"According to the Confederation of Finnish Industries´ January business tendency survey, the very weak business cycle continued to weigh down Finnish companies," the EK added.

"Significant recovery has not yet taken place, even though the business outlook did gradually stabilise towards the end of last year."

"Yields on 10 year Portugese government bonds jumped 21 basis points yesterday as funds switched their fire to the next "domino".

As Chelyabinsk has noted before, the City/Canary Wharf speculators and Mayfair hedge funds are hoping for a re-run of the 1996 SE Asia currency crises. Except this time the "dominoes" are sovereign bond markets not national currencies.These same speculators will turn their attention on UK bond markets and sterling, if not stopped, especially as the Bank of England today is ending its programme of quantitative easing. The UK bond market is looking highly vulnerable.Fingers crossed for sterling and UK gilts, otherwise UK interest rates will rocket.

This is just incredible. Who tricked these (rural?) municipalities into playing with derivatives first place? No wonder they seize the banksters' assets now.

Bloomberg folks used the wrong word there, they should have used "regions, provinces and townhalls" and I bet most of them are hardly rural. Puglia is not a municipality but a region of over 4 million people. From what I read on Italian websites, BoA and another Italian bank (Crediop) made investments in funds on behalf of these state institutions. Guess the returns where not that good.

I don't think we have a general Portugal/Italy/Ireland/Greece/Spain thread yet, but please feel free to merge if we do!

I have a long term thread (since 2008) on the euro going to hell where i have been monitoring the bond spreads to detect the first signs of a country likely to come under pressure to leave the euro. But, our threads are sufficiently different and so no point merging. Back in 2008 i wrote the following:

QUOTE

The spread between 10 yr bunds and other key € bonds as of 18th July is: